£900million of student loans sold to debt collection company

Student loans … the government funding for university students to complete their degrees, which is only paid back when the graduate is earning more than £15k a year, which may well never be the case for some people in the current economic climate.

This morning, according to the Independent, the government has sold almost £900 million in student loans to a debt collection company in an effort to improve the nation’s finances. A debt management consortium bought the loans from the Student Loans Company for £160 million, after Universities Minister David Willetts launched a project to find a new buyer earlier in the year.

Mr Willets said that the loans, which were taken out by students who began courses between 1990 and 1998, were sold to allow the Student Loans Company to concentrate on administering newer loans. He added that the private sector was best placed to collect the outstanding debt.

Of the 250,000 loans sold, around 46 per cent are earning below the repayment threshold, 14 per cent of borrowers are still repaying and 40 per cent are not repaying their loans in accordance with their terms.

A spokesman for the Department for Business, Innovation and Skills told The Independent that the loans being sold were the last batch of older, mortgage-style loans, and that no-one with a loan taken out after 1998 would be affected. This is the last batch of these loans to be sold off, representing about 17 per cent of the total taken out. Holders of these older loans will not see changes in their terms and conditions, including on the calculation of interest rates.

He confirmed that the Government is currently “looking at options” on what to do with post-’98, income-contingent loans, and that “no decisions have been made”.

Toni Pearce, the president of the NUS said that the move was “extremely concerning”, and that it “will see the public subsidising a private company making a profit from public debt”. “The impact of this sale won’t only affect borrowers, but will affect everybody. The simple fact is that having these loans on the public books would be better off for the Government in the long run. Selling off the loan book at a discount to secure a cash lump sum now doesn’t make economic sense.”

Aaron Kiely of the Student Assembly Against Austerity said: “It is outrageous that the government has just sold off a public asset worth £900m for only £160m, confirming once again that the Tories care more about the profits of their mates than the lives of ordinary people. This will lead to higher interest rates and a greater burden of debt on graduates, with private companies aiming to make as much profit as they can.”

The project to find a buyer was launched earlier this year, when Mr Willetts said the plan would “maximise the value of one of the Government’s assets”.

The mortgage-style loans have a face value of around £890 million but the market value is significantly lower. The SLC will continue to manage the loan book until it is transferred to Erudio Student Loans in a few months’ time. Erudio is backed by a consortium led by CarVal Investors and Arrow Global, a consumer debt management firm.